Banks have likely bought bonds in recent months from Tata Motors, Trent West Side, HDFC Ltd, Chennai Petroleum, Rural Electrification Corp (REC), Power Finance Corp (PFC) and Indian Hotels, in particular due to a slowdown in loan demand.
“Banks see an opportunity to expand their business through investment, with little growth in the industry,” said Ajay Manglunia, managing director of debt capital markets at JM Financial. “We can see that they subscribe to a significant share in every release under the brand, which brings safety first compared to higher margins.”
Traditional investors, including funds, are slowing down amid limited inflows, ”he said.
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is reportedly ramping up its bond investment and is likely to absorb a large chunk of Chennai Petroleum’s bonds, dealers said. In June last week, the triple-A-rated state-owned company offered 5.44% for a three-year term.
More than a month ago, the country’s largest mortgage lender HDFC Ltd sold Rs 7,000 worth of bonds offering 6 percent with a maturity of five years. Axis is believed to have subscribed to part of the problem.
Individual banks did not respond to an ET request. Axis Bank declined to comment.
“According to the latest data, RBI may not raise rates in the near future to support the recovery,” said Debendra Dash, senior vice president of AU Small Finance Bank. “Creditworthy companies raise funds through bonds, which are cheaper than loans. This makes sense for banks investing in such securities, since their yield is at least higher than that of government securities. ”
“Any highly rated securities can become a good alternative to large-scale credit expansion, which is hardly possible to see now,” he said.
Banks rushed to pick up the bonds sold
The top-rated government-backed company raised about Rs 3200 crore in long-term securities about two weeks ago. Bonds with a maturity of 6-15 years were offered in the amount of 6.35-7.11 percent.
Coastal Gujrat Power, a wholly owned subsidiary of Tata Power, got a lot of attention when it raised Rs 570 crore, offering 5.70% with a three-year maturity. It has an AA rating with improved creditworthiness.
These bond sales took place from late April to late June. The rates of bond issue slowed down in July, and on some working days not a single transaction was registered on the primary market.
Banks increased their loans by 6.1% year on year in the two weeks ended July 3, even as deposit growth slowed, the latest data from the Reserve Bank of India showed. Loan size increased by 5.8 percent in June amid sluggish business activity. In normal times, loan growth rates are higher than these levels.